Morrisons’ credit rating downgraded after report of poor sales and profit

theguardian.com:

Morrisons’ credit rating has been downgraded after the supermarket reported poor sales and profits in the latest blow for the UK’s fifth-largest supermarket.

Moody’s, the credit rating agency, said the outlook for Morrisons’ ability to repay its £7.5bn of debts had shifted to negative from stable and its existing junk rating knocked down one notch, from B1 to B2, indicating higher risk.

Citing an “aggressive financial strategy, high leverage” and private equity ownership as factors in the downgrade, analysts flagged concerns about “operating underperformance”, saying Morrisons was suffering from lower sales combined with higher costs for energy, wages and transport.

The downgrade was triggered by lower than expected profits for 2022, as revealed in figures published by Morrisons last month, which meant the retailer’s debts now stand at 9.1 times underlying profits against the credit rating agency’s expectation of 6.5 times.

Moody’s said the outlook was negative as Morrisons’ debt to profits ratio put it close to a further downgrade. However, the report added that the supermarket’s sales had risen ahead of Christmas and its market share had stabilised, according to data from the market research firm Kantar, suggesting profits could improve in 2023.

The supermarket chain was taken private in 2021 in a £7bn debt-fuelled takeover by the US private equity firm Clayton Dubilier & Rice, and the rising cost of living, supply chain logjams and political uncertainty have put the business under strain.

The retailer, which lost its spot as the UK’s fourth-largest supermarket to Aldi last year, said underlying profits fell 15% to £828m in the year ending 30 October, as revenues at established stores decreased by 4.2%.

Revenues were down